How To Revive Dying Industrial Cities

News reports suggest that the Textile Labour Association (FLA) in Gujarat has become the first trade union to embrace the idea that scrapping sick units is the correct way to revive dying industrial cities like Ahmedabad and Kanpur. This is welcome recognition from industrial workers of here their own interests lie.

Agreement has been reached in principle by the state government, Centre and the TLA on a government takeover of 14 sick textile mills for liquidation. The mills’ assets will be sold to raise cash to provide for the workers compensation and claims of other creditors like banks and tax authorities. The centre will provide additional funds from the National Renewal und for compensation and retraining of displaced workers. And the land belonging to the mills ill be redeveloped to create non-polluting industries that will yield fresh employment.

The point to note in this package that it clearly should not be tiled an exit policy. It is a policy for taking land, labour and machinery out of dead units and harnessing them in new, productive enterprises. Immense harm has been done by those who call this an exit policy. In fact it is a policy for economic renewal, for shifting resources out of unproductive areas into productive ones.

Every country needs a constant shift of this kind to improve incomes and employment. Successful companies can achieve this shift by modernizing their facilities. But sick units don’t have the cash to do so. In their case, the only way out’ is to liquidate the company, sell the assets, and start afresh.

REASONS: This has not been I done so far in India; for a number of reasons. First, trade unions tend to assure their workers that the government will take over the mills provided enough pressure is applied, and so there is worker resistance to closure. Second, crooked mill-owners will often complain about the outrageous wage demands of their workers. But let their companies fair sick and the owners will suddenly fall in love with the workers, and tell the government and nationalized banks that hundreds of crores must be pumped into their companies to keep their beloved workers from starvation. Part of this extra cash goes to the workers, part of is it siphoned away by crooked owners, and between the two they bleed the banks dry (unrecoverable bank loans now exceed their entire paid up capital).

Politicians have been happy to go along with this game, since it helps them get votes from the workers and bribes from the industrialists. This is why the closure of sick units was prevented for so long, and why the country’s land, labour and machinery got locked in so many unproductive enterprises. However, sooner or later this policy of bleeding the exchequer and banks was bound to plunge them into a financial crisis. This is the case today, and explains why reform has become inevitable.

The government lacks the cash or stamina to keep taking over sick mills, and knows it can’t keep flogging the banks either. The Board for Industrial and Financial’ Restructuring (BIFR) was created some years ago to speed up liquidation in cases where companies were beyond recovery. The ordinary reader might think that workers have resisted such liquidation. In fact it is the owners who have repeatedly gone to courts and got stay orders. They would like to keep the old racket operating.

IDLE: State governments originally declared they would not jeopardize by allowing mills to be liquidated.’ In fact this lack of permission has only hit the workers, who cannot get even their gratuity and other dues because the company has no cash and is prevented from selling itsassets to meet workers’ dues. Entire citieslike Ahmedabad and Kanpur have become littered with sick units whose land, machinery and labour are frozen in inactivity. This enforced idleness of precious resources has naturally dragged down the whole economy of these cities.

To get out of this, it is necessary to defreeze frozen assets. But this will not be achieved by liquidation alone. We must also have schemes to help workers to use their retrenchment benefits to set up their own small businesses. After all, if a worker gets one lakh rupees as terminal benefits he should be able to get another one lakh rupees as a bank loan to start a shop, restaurant or agency. Finance from government banks is unwarranted to keep dead jobs alive, but is essential to enable retrenched workers to become businessmen in their own right.

Second, the government has, in the case of cities like Ahmedabadi and Kanpur, sensibly lifted the existing ban on new industries within large cities. The need of the hour is to create, new industries in these cities, not to chase them out. Of course, highly polluting industries can be banned, but others must not only be allowed but encouraged. These will be able to harness the land and skills already present in these cities, convert these resources into productive endeavors, and thus revive the fortunes of the cities as a whole. The vicious downward spiral will give way to a virtuous upward spiral. Decay will be replaced by rejuvenation.

This is not exit, and it is not laissez faire. It is the combination of government, private enterprise and labour in a sensible, productive way. This is a sea change from’ the old racket between the three which bankrupted banks and the exchequer to feed the vested. interest of crooked mill owners, politicians and trade unions. It is a change we need in every city.